Give urban spenders a nudge to spend
India's economy has been a shining star when it comes to growth. Even as IMF lowered expectations for the world, including China's, it bumped up India's. So, there's little debate about the direction of the economy.
But there are some differences that seem to be emerging about the pace and spread of it between regions. The message from both finance ministry and RBI chimes — that growth prospects are bright. But earlier this week, Shaktikanta Das highlighted that urban demand may be weak, while rural is humming along.
Ground reality certainly suggests so.
Motorcycle purchases — where the predominant market is rural India — is poised to grow 12-14%, the best in three years. Urban centres that contribute substantially to the sale of cars are showing weakness, with inventories piling up. Even makers of soaps and noodles like HUL and Nestle are flagging the sagging appetite among urban middle classes.
One reason could be the sliding affordability as wage growth in the organised sector has been modest, especially after adjusting for inflation. When deflated by urban CPI, real salary and wage expenditure growth of listed non-financial corporates — proxy for real urban wages — has moderated to 0.8% on year in the September quarter, from 1.2% in June, according to Nomura Securities. It was 2.5% last fiscal.
Furthermore, RBI, as part of its prudential measures, had raised capital requirements for some consumption loans. This has resulted in a fall in the growth rate of unsecured loans to consumers.
While the weak urban demand may be temporary, there's also a risk of it worsening if people's expectations about future prospects shift lower due to poor wages growth and reduced loans. India's potential growth rate has risen in the
